NewtekOne, Inc. (NEWT) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals: strong revenue growth and improved efficiency are positive, but uncertainties like the government shutdown and unclear guidance impact sentiment negatively. The company's strategy to diversify its loan portfolio and ALP growth is promising, yet the reluctance to increase dividends and the cautious stance on guidance due to external factors create a neutral outlook.
Key Financial Performance
Q3 Basic and Diluted Earnings Per Share $0.68 and $0.67 respectively, with a year-over-year growth of 47% and 22%. This growth is attributed to revenue growth of 19% to 16% respectively.
Tangible Book Value Per Share Increased from $6.92 in Q1 2023 to $11.22 in Q3 2025. This growth occurred while paying a dividend of $0.76 annually ($0.19 per quarter).
Core Deposits Growth Business deposits grew by $52 million (17%) and consumer deposits by $95 million (12%) sequentially over the quarter. This growth was achieved without traditional branches, bankers, brokers, or BDOs.
Alternative Loan Program (ALP) Securitization Expected to reach $325 million to $350 million in Q4 2025, marking the largest securitization to date. This program has historically had charge-offs below 1%.
Capital Position Tier 1 capital and common equity Tier 1 increased by $80 million and $30 million respectively, bolstering the capital structure.
Efficiency Ratio Declined from 61.8% to 56.3% at the holding company level, even as assets grew by 43% and operating expenses increased by only 8.5%.
Return on Average Assets (ROAA) 3.15% for Q3 2025, significantly ahead of industry standards.
Nonaccrual Loans (NPLs) NPLs to total loans stood at 8.1%, which is high compared to community banks but has been written down. Adjusted NPLs (excluding NSBF portfolio) are at 3.8%.
Net Interest Margin (NIM) 5.4% for Q3 2025, significantly higher than top banks.
Allowance for Credit Losses 5.42%, indicating strong reserves to support higher losses and charge-offs.
NSBF Losses Losses from the nonbank lender in wind-down mode are expected to decline from $28.7 million in 2024 to $18 million-$20 million in 2025.
Payment Processing Business Contribution Expected to contribute $16.5 million in pretax income for 2025.
Insurance Policies 10,000 policies in 2025, up 34% year-over-year, contributing $800,000 in pretax income.
Payroll Business Contributing $600,000 in pretax income with 20,000 employees serviced.
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Operating Highlights
NewtekOne Triple Play: A new offering that provides customers with an unsecured line of credit up to $10,000, a bank account, and a merchant or payroll account, all bundled together.
Market focus on SMEs and SMBs: Targeting over 36 million small and medium-sized businesses in the U.S., which represent 43% of U.S. GDP. The company has supported or stabilized over 110,000 jobs through the SBA 7(a) program.
Deposit growth: Core deposits grew significantly, with business deposits increasing by $52 million (17%) and consumer deposits by $95 million (12%) sequentially. Deposits are being raised without traditional branches or bankers.
Efficiency improvements: The efficiency ratio declined from 61.8% to 56.3% at the holding company level, while operating expenses grew only 8.5% despite a 43% increase in assets.
Alternative Loan Program (ALP): The company is preparing its largest ALP securitization to date, valued at $325-$350 million. This program has historically low charge-offs and high profitability.
Capital structure enhancement: Raised $80 million in Tier 1 capital and $30 million in common equity Tier 1, improving capital ratios to support growth.
Shift to technology-enabled banking: Positioning as a technology-oriented financial holding company, focusing on cost-effective customer acquisition and remote operations without traditional branches.
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Risk or Challenges
Credit Quality and Non-Performing Loans (NPLs): NPLs are relatively high at 8.1%, which is significantly higher than typical community banks. While these have been written down, they still represent a risk to profitability and stability. The legacy nonbank lender (NSBF) is in wind-down mode but continues to generate losses, albeit at a declining rate. Nonaccrual inflows have decelerated, but the portfolio still poses challenges.
Alternative Loan Program (ALP): The ALP is a key growth area but carries risks due to its reliance on securitizations for funding. While historical charge-offs have been low, the program's expansion and reliance on external funding mechanisms could expose the company to market and liquidity risks.
Regulatory and Capital Requirements: The company has bolstered its capital position through preferred and common equity issuances, but its reliance on securitizations and complex funding structures could attract regulatory scrutiny or require additional capital adjustments.
Deposit Growth and Cost: The company is growing deposits without traditional branches, but the sustainability of acquiring deposits below the risk-free rate remains uncertain. This could impact margins if deposit costs rise.
Economic and Market Conditions: The company operates in a rapidly changing market environment, including rising interest rates and economic uncertainties, which could impact loan performance and deposit growth.
Legacy Nonbank Lending Portfolio (NSBF): The NSBF portfolio is in wind-down mode but continues to generate losses. While these losses are declining, they still impact overall financial performance and could take 12-24 months to fully resolve.
Operational Efficiency: While the efficiency ratio has improved, the company’s rapid growth in assets and operations could strain resources and lead to operational inefficiencies if not managed carefully.
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Guidance & Outlook
Alternative Loan Program (ALP) Securitization: The company expects to execute its largest ALP securitization in Q4 2025, with a range of $325 million to $350 million in ALP loans. This will be the 17th securitization in NewtekOne's history and the fourth in this category.
Capital Position and Structure: The company raised $80 million in Tier 1 capital and $30 million in common equity Tier 1, bolstering its capital ratios to support growth rates safely and soundly.
Efficiency Ratio: The efficiency ratio at the holding company declined from 61.8% to 56.3%, with operating expenses growing at a slower rate than total assets and revenues.
Deposit Growth: Deposits grew by 11% quarter-over-quarter, with a focus on reducing deposit costs to 2%-2.5% through integration with merchant, payroll, and insurance services.
NewtekOne Triple Play Offering: The company plans to launch the NewtekOne Triple Play, offering customers an unsecured line of credit up to $10,000, a bank account, and a merchant or payroll account.
SBA 7(a) Loan Portfolio Strategy: The company plans to diversify its loan portfolio by adding more CRE and C&I loans to reduce concentration in SBA 7(a) loans.
NSBF Portfolio Wind-Down: The NSBF portfolio is in wind-down mode, with nonaccrual inflows decelerating and expected losses for 2025 projected at $18 million to $20 million, down from $28.7 million in 2024.
Growth in Business Segments: The payment processing business is expected to contribute $16.5 million in pretax income for 2025, while the insurance agency and payroll business are projected to contribute $800,000 and $600,000 in pretax income, respectively.
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Shareholder Return Plan
Dividend Payment: Paid a healthy dividend to shareholders, currently $0.19 per quarter or $0.76 annually.
Share Buyback: No specific mention of a share buyback program in the transcript.
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Key Q&A
Q:What are the current credit trends in the market?
A:The market is experiencing stress and strain, particularly in the small business community. The company is avoiding volatile industries like oil and gas, transportation, and agriculture. The consumer side remains strong as long as equity and real estate markets hold or appreciate. The company's portfolio is stabilizing due to its long experience in the lending space.
Q:Is the company still confident in its previous guidance of $0.65 to $0.80 for Q4?
A:The company is not pulling the guidance but cannot affirm it due to the government shutdown. If the shutdown ends within two weeks, no dramatic changes are expected, but the situation remains uncertain.
Q:Can the company still process loans during the SBA shutdown?
A:Yes, the company can process loans that were approved before the shutdown and is providing bridge financing to borrowers. However, the shutdown's duration could impact originations and loan sales if it extends significantly.
Q:What are the Tier 1 and total capital risk-based ratios for the holding company?
A:The Tier 1 leverage ratio is approximately 12.5%, and the total risk-based capital ratio is just shy of 16%.
Q:Did the company pull PLP numbers ahead of the SBA shutdown, and what volume could be expected from those pulls?
A:Yes, the company pulled PLP numbers, covering loans that will likely fund about 45 days from the PLP number issuance. This covers approximately half the quarter.
Q:What are the key drivers of the $29 million in loans under the fair value option?
A:The drivers include ramping up for a securitization of $325 million to $350 million in capital and holding additional 7(a) guarantees for sale once the government reopens.
Q:Is the company pulling or affirming its guidance, and what factors influence this decision?
A:The company is not pulling the guidance but is also not affirming it due to the uncertainty of the government shutdown. Timing issues, such as gain on sale revenue, are a factor.
Q:What is the current customer demand and confidence in the SBA lending space?
A:Customer demand and confidence are affected by changes in SBA regulations, such as restrictions on refinancing merchant cash advances and ownership chain requirements. The market is tougher, but the company remains optimistic about its long-term position.
Q:What is the company's strategy for diversifying its loan portfolio?
A:The company is focusing on adding more C&I and CRE loans to its portfolio, reducing reliance on SBA 7(a) loans, and growing its Alternative Loan Program (ALP) business.
Q:What is the expected run rate for future securitizations?
A:The company aims to conduct two securitizations per year, with larger pools for better diversification and investor receptivity. The current average loan size is $4.5 million to $5 million.
Q:What flexibility does the company expect after its 3-year anniversary?
A:The company plans to use its balance sheet more effectively, improve deposit and ALP execution, and provide better guidance to analysts and investors. It aims to maintain a diversified product mix.
Q:Why are some SBA lenders leaving the market, and how does this affect the company?
A:Some SBA lenders are exiting due to regulatory changes and challenges in the lending environment. The company sees this as an opportunity to gain market share and expects to meet its AOP loan targets for the year.
Q:What is the collateral for ALP loans, and how are they underwritten?
A:ALP loans are backed by business appraisals, commercial real estate liens, intellectual property, machinery, equipment, inventory, and personal guarantees. Borrowers are attracted to these loans for their long amortization and flexible covenants.
Q:What are the company's thoughts on increasing the dividend?
A:The company is unlikely to increase the dividend in the near term, as it sees more value in stock buybacks or maintaining the current dividend level.
Q:Do regulators require the company to maintain higher capital ratios due to its unconventional business model?
A:No, regulators have not required higher capital ratios. The company's decision to maintain healthy capital ratios was a management choice to demonstrate stability and capability.
Q:How does the company view its business model compared to FinTech companies?
A:The company sees itself as a hybrid of technology and traditional banking, with a focus on efficient money movement and customer service. It believes its model is undervalued compared to FinTech companies with similar metrics.
Q:What are the company's current assets and funding sources?
A:The company has $1.4 billion in assets at the bank level and $2.4 billion at the holding company level. Its primary funding source has shifted from raising money as a BDC to gathering deposits, with 78% of deposits being FDIC-insured.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer on whether the company would affirm or pull its guidance for Q4, citing uncertainty due to the government shutdown. Additionally, they did not provide a clear timeline for when the shutdown might significantly impact loan originations and sales. The response to the dividend increase question was also vague, with no definitive stance provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Accounting Officer
Associates Inc
Bruyette Woods
CFO Chief
Chief Accounting
Chief Executive
Co Inc
Co Research
Conference Instructions
Division Keefe
Division Ladenburg
Division Piper
Division Raymond
Division Riley
Division day
Executive Officer
Executive VP
Inc Research
Keefe Bruyette
Ladenburg Thalmann
Officer Keefe
Piper Sandler
President Chief
Raymond Associates
Research Division
Riley Securities
Sandler Co
Securities Inc
Thalmann Co
VP CFO
Woods Inc
NEWT Transcript
NewtekOne, Inc. (NEWT) Q1 2026 Earnings Call Transcript
Positive4-30
The earnings call summary shows strong financial performance with significant growth in tangible book value and return on equity. Despite some net charge-offs, risk management remains robust. The Q&A section reveals positive sentiment, with expectations of continued loan growth and efficient capital use through securitization. Concerns about NII growth projections and unclear management responses slightly temper the overall sentiment. However, the guidance on EPS and loan originations, along with technological advancements and strategic diversification, suggest a positive outlook for the stock price movement.
NewtekOne, Inc. (NEWT) Q4 2025 Earnings Call Transcript
Positive1-29
The earnings call summary reveals strong financial performance with improved efficiency ratios, deposit growth, and tangible book value. Product development and market strategy are promising, with new offerings and partnerships. Despite flat noninterest income, optimistic guidance and strategic initiatives are positive. The Q&A section highlights digital growth and competitive positioning, with some concerns about unclear management responses. Overall, the sentiment is positive, given the financial health and strategic plans, suggesting a potential stock price increase of 2% to 8%.
NewtekOne, Inc. (NEWT) Q3 2025 Earnings Call Transcript
Unknown10-29
The earnings call presents mixed signals: strong revenue growth and improved efficiency are positive, but uncertainties like the government shutdown and unclear guidance impact sentiment negatively. The company's strategy to diversify its loan portfolio and ALP growth is promising, yet the reluctance to increase dividends and the cautious stance on guidance due to external factors create a neutral outlook.
NewtekOne, Inc. (NEWT) Q2 2025 Earnings Call Transcript
Positive7-28
The earnings call summary reveals strong financial performance with high ROAA and ROTCE, indicating profitability. The Q&A session highlights growth in deposits and successful securitization strategies, although management's vague responses on stock valuation and integration impacts introduce some uncertainty. The stable expense outlook and no dividend increase align with a conservative approach. Overall, the positive financial metrics, clear growth strategies, and lack of significant negative trends suggest a positive stock price movement in the short term.
NEWT Slides
NEWT Report
Frequently Asked Questions
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